The Energy Workers Debate

August 12, 2009

The highly-publicized dispute at French oil major Total’s use of non-British labour at its UK oil refinery in Lindsey and the unofficial strikes which followed elsewhere, has brought the issue of migrant labour undercutting local workers into the national spotlight. The Total dispute has served as a catalyst for some two thousand unionised energy workers to vote next month on threatened strike action in relation to jobs, pay and migrant labour. Among the sites which will potentially be affected include Ineos’s Grangemouth oil refinery in Scotland, Shell’s Stanlow refinery in Cheshire, BP’s North Sea oil processing terminal at Grangemouth, Sellafield nuclear plant in Cumbria, and two RWE power stations in Nottinghamshire and South Wales, and Chevron’s refinery in Pembroke, west Wales.

For energy companies managing large industrial workforces, the legal environment can be hazardous, and the issues which need to be addressed are complex. This article considers the legal framework within which workers from other European countries are able – and entitled – to work in the UK, the protection offered to them under UK and European law and some key issues in dealing with official and unofficial strike action, and those who engage in it. This includes the position of posted workers, other third-party contract workers as well as that of the striking resident worker.

The British workers debateThe recent disputes involving energy workers have focused much media attention on the “British jobs for British workers” debate. Gordon Brown’s use of that phrase in his first leader’s party conference speech in 2007 has become the touchstone for voluminous comment, sometimes politically slanted and ill-informed, arising from this apparent resurgence of 1970’s-style protest. In fairness, the “British jobs for British workers” comment – which appeared in similar format (and context) in various speeches, interviews and press releases from the Prime Minister in the Autumn of 2007 – represents neither the crude protectionist stance nor the foolish and undeliverable guarantee that is often claimed. Leaving aside any analysis of what exactly is meant by “British” (e.g. legally British, the holder of a British passport or just lawfully living and working here), the comments relate to the expressed Government aspiration “to advance…. further and faster to full employment than ever before” which immediately preceded the well-used quote in his speech to the TUC conference. It encourages the type of agreement which the Unite union believed was sealed in February, establishing “the principle of fair access for UK workers on British construction products….to level the playing field for UK workers” so that unofficial strikers could “get back to work”. On the same day, Mr. Brown refused to withdraw or apologise for the remark.

First, it is worth considering in outline the position would-be workers from beyond the European Economic Area who have no immigration status entitling them to work in the UK at all. The law governing the right of non-EEA nationals to reside and work in the UK is governed by the Immigration Rules, the legal authority of which derives from the Immigration Act 1971 as amended. The current Immigration Rules, comprehensively amended by successive statements of changes, date from 1994. Under them, the Government is able to prescribe a comprehensive regulatory regime for all non-EEA immigration.

It is by and large the case (more so following the closure of the work permit scheme and many associated arrangements in November 2008) that the UK labour market is closed to most non-professional, non-graduate workers from beyond the EEA. The new points based system (PBS) retains a highly prescribed resident labour market test even for skilled professional roles before a non-EEA worker can be engaged, unless directly employed workers are transferring intra-company. Although PBS Tier 3, for temporary, low-skilled workers, exists in the legal and regulatory framework, it has never been opened and, as the Government has repeatedly stated, is never likely to be while there is an open source of virtually unrestricted labour from within the EEA.

Almost all of the “foreign” workers whose presence on UK contracts has provoked strike action come from within the EEA. Within this group, there are distinctions. The initial strike at Lindsey in January 2009 followed the contracting of Italian and Portuguese workers. The wildcat strike which followed at Milford Haven in May featured 50 Polish workers, allegedly in breach of a local labour agreement; in other cases, Bulgarian and Romanian workers have been cited.

EEA nationals derive free movement rights in the EEA from the European Treaty, which means that they are not subject to the Immigration Rules. They enter and live in the UK in accordance with the UK regulations currently in force, which transpose European law obligations into domestic legislation – and can prescribe the level and manner of access to the labour market. The UK operates a three-tier regime for the 29 EEA countries (which include Iceland, Liechtenstein and Norway as well as the member states of the European Union) and Switzerland. The subdivisions are as follows:“Old” EEA countries and SwitzerlandAccess to the UK labour market is effectively unrestricted to nationals of those EEA member states which joined before 2004, and to Switzerland (the subject of a bilateral agreement of 2002 which confers on its nationals and their family members free movement rights similar to those enjoyed by EEA nationals). The basic point that these countries include Italy and Portugal – the source of the workers whose presence on UK contracts sparked the initial Lindsey dispute – was understood by the parties engaged in the dispute, if not always the politicians and media who chose to comment. Their entitlements to equal access to the labour market reflect other protections in domestic law, considered in more detail below. The issue of local agreements facilitating the access of specifically British workers to work on UK contracts is a separate issue.

Those EEA nationals of who exercise treaty rights by, for example, working whether employed or self employed, or being a student transmit entitlements to third country national dependents to apply to reside (and where appropriate work) in the UK.

“Accession 8” CountriesNationals of those mainly eastern European countries which joined the EEA on 1 April 2004 have more restricted access to the labour market, while enjoying the same free movement rights as existing member state nationals. (Nationals of Cyprus and Malta, which joined on the same day, are exempt from these restrictions).

Employment and self employment are permitted, but are subject to a mandatory registration regime, breach of which can result in penalties for employers and workers. Those who have worked and resided lawfully in accordance with the regulations, currently the Immigration (European Economic Area) Regulations 2006 can apply for a declaration of their exemption from further registration provided that they continue to exercise treaty rights. The filling of vacancies on contracts at the South Hook Liquid Gas Plant in Milford Haven by Polish workers prompted the latest series of wild cat strikes in Wales and the North of England.

“Accession 2” NationalsThe heaviest restrictions on labour market access for EEA nationals is reserved for Bulgarian and Romanian workers. The different approach reflects the greater disparity in GDP between these two countries and the “established” EEA states, demographic considerations arising from higher unemployment rates and concerns about the effectiveness of an implementation of European law obligations into domestic law.

So as to accommodate their status as EEA nationals (which places them outside the Immigration Rules governing the points based system) while fettering access to the labour market, substantial elements of the otherwise withdrawn work permit scheme have been retained specifically for Bulgarians and Romanians. This has been the case since their accession on 1 January 2007; the initial arrangement was for two years, and its continuation was reconfirmed for a further two years as that approached expiry. This means, that in practice, Bulgarian and Romanian nationals who are employed under the work permit arrangements must meet the relatively stringent criteria of that arrangement as outlined above. It is important to note that work permits are primarily intended to cover conventional employment situations only, whereby the worker is employed in the UK under a direct contract of employment by the UK entity and subject to PAYE and Class I National Insurance contributions. The practical result is authorised employment is broadly restricted to professional roles requiring graduate or professional-level qualifications and, unless an intra-company transfer is involved, a prescribed resident labour market test to demonstrate that no resident worker could be found to perform the role.Posted workersEuropean law makes provision for “posted workers” to work in another member state of the EU without specific immigration permission, and exempt from any compulsory documentary declaration of immigration status. Deriving from the Posting of Workers Directive 96/71/EC, this sits awkwardly alongside the efforts of member state to regulate and document non-native workers.

The Directive does not define “worker”, but provides that the definition is that of the “law of the member state to which the worker is posted”. In the UK, a posted worker is defined as an employee of an entity established in another member state, who has been sent by his employer to work temporarily in the UK under the terms of a contract between the employer and the UK-based third-party recipient of the employer’s services. The onus is on the worker to demonstrate that he meets the condition of “posted worker” for immigration purposes, in the absence of any formal declaration or application to the UK immigration authorities. There must always be an employment relationship, and it must always remain in the “posting” member state.

Problems have arisen, notably in relation to Bulgarian and Romanian workers who have been presented as “posted workers” when no real contact of employment exists in the posting member state, or where a contract of employment can be inferred in the UK. If the employment is in the UK, then Bulgarian and Romanian workers must have specific immigration permission as set out above. If they are self-employed, they cannot be posted workers and their status must be appropriately documented.

In addition to the immigration issues raised above, recent industrial relations problems have highlighted potential opportunities for an employer operating in the UK who wishes to engage foreign nationals as opposed to locally sourced employees to work on particular projects either for the short or long term but also the potential pitfalls they need to be mindful of.

As outlined above certain foreign nationals who come to work in the UK to fulfil such projects are protected by the Posted Workers Directive (96/71/EC) of 1996. The inherent limitations of this directive have been highlighted recently as has its impact, in particular on locally-sourced British workers and Trade Unions in the UK.

In essence, the Posted Workers Directive requires the host state to ensure that workers posted to it are guaranteed the standards laid down by law, regulation or administrative provision of the host state in specified areas. Interestingly, the host state rules in these areas apply to a posted worker even if the home states rules provide inferior protection. The host states obligations applies to certain basic employment rights including maximum work periods and minimum rest periods, minimum paid annual holidays, minimum rates of pay, including overtime rates, health safety and hygiene at work and protected measures for pregnant women and those who have recently give birth. This means that foreign workers posted to the UK need only be paid the statutory minimum wage which is currently £5.73 for workers aged 22 and over.

In addition, the Posted Workers Directive expressly protects foreign nationals posted in the UK in relation to equality of treatment between men and women and other provisions on non-discrimination, which is presumed to include all strands of equality law.

Despite these protections for foreign workers who carry out work here for a limited period, due to the significant differences between the UK and the majority of other EU member states as regards the methodology of collective bargaining and the number of collective agreements (which in the UK cover only 33% of the workforce which is by a considerable margin amongst the lowest of the original 15 EU member states), employers who engage foreign nationals on temporary projects need not comply with collective wage agreements. This is due to the fact that under the Posted Workers Directive, posted workers need only be paid the rate laid down in such collective agreements where workers are posted to countries where collective agreements are “universally applicable” within a given sector and geographical area. That is traditionally not the case in the United Kingdom where collective agreements are typically negotiated at enterprise level. As such, collective wage agreements here may be effectively undercut by companies based overseas who are only obliged to pay posted workers the national minimum wage.

Recent decisions of the European Court of Justice (ECJ) have confirmed this position. In one case, Laval un Partneri -v- Svenska Bygnaddsarbetareforbundet, the Court held that although protected by Swedish national law, industrial action by Swedish unions which was designed to ensure that a Latvian contract paid Swedish rates determined by Swedish collective agreement to Latvian workers employed on a Swedish building site may be unlawful under EU law. Similarly, in the case of Ruffert -v- Land Niedersachsen, a German law requiring public sector contractors and sub-contractors to pay workers the minimum wage laid down by a local collective agreement was seen as an unjustified barrier to the ability of foreign contractors to provide services in Germany and therefore breached the provisions of the Posted Workers Directive. If an employer engages foreign nationals in the UK to such an extent that their employment is deemed to have become more closely connected with the UK than the home country, it is possible that such workers could later benefit from certain “mandatory rules” stretching beyond the requirements of the Posted Workers Directive to cover statutory employment protection rights available in the UK, e.g. the right to claim unfair dismissal or certain redundancy payment rights (depending on length of service).

Much of the controversy surrounding the Lindsey dispute, in particular, have centred on the position of locally sourced British workers whose rights, in this situation, have appeared somewhat limited.

Individual actions based on UK anti-discrimination legislation in respect of direct or indirect discrimination (which encompasses discrimination based on nationality) could potentially be invoked here. However, this is not something which has featured strongly to date. Instead, the emphasis has been on industrial action. Interestingly, for companies facing collective action in these particular circumstances, the employer may have the option itself of suing any Trade Union engaging in industrial action which breaches the EU treaty. In light of the ECJ case law referred to above and the case of BALPA -v- British Airways in 2008, when union action had to be abandoned despite being in compliance with British law but contrary to EU law, it is perhaps unsurprising in view of the risk to union funds that disputes to date have centred on unofficial industrial action and “wildcat” strikes both at Lindsey and around the country in support.

Under UK law, as would be expected, there is a disparity in protection between those workers who participate in official industrial action, (which in essence requires the Trade Union to be engaging in a trade dispute, have carried out a legitimate ballot of all those entitled to vote, taken action within four weeks of the ballot and not less than seven days after a valid notice of industrial action has been served on an employer) and those engaged in unofficial action. Employees who take part in official industrial action cannot normally claim unfair dismissal if the employer dismisses all of them, but can claim if the employer selectively dismisses or selectively offers re-engagement. However, employees taking part in unofficial industrial action have no right to claim unfair dismissal.

As such, for the present, companies who successfully tender for British contracts and hire their own direct labour force form their own home country are in a relatively strong position to do so without fear of the impact of successful Employment Tribunal claims or, at present, concerted official industrial action. However, the storm created by the recent Lindsey dispute has led to union initiatives being taken at both a national and European level to counteract the limitations of the Posted Workers Directive and the European Court judgements outlined above in particular. In addition, we understand that the European Commission has itself agreed to establish a high level group to look at the operation of the Posted Workers Directive and has asked the social partners to consider the implications of the recent European Court rulings, including those referred to in this article.

Finally, ACAS which became involved in trying to conciliate the Lindsey Oil Refinery dispute state in their report into that dispute that “we also believe there should be a review by the parties to the agreement of the inter-relationship between national and local collective agreements to ensure greater consistency in terms of conditions of employment with less scope for variation at local level. This would also aid transparency and reduce the potential for misunderstandings and conflict”.

As a highly sensitive political issue taking place in the backdrop of current economic recession, it is possible that the legal landscape surrounding the engagement of foreign nationals by energy companies operating in the UK will change in the future. The labour intensive projects to support the Olympic Games to be held in London in 2012 could be a further flash point for this.